Mexico gets first bid for $10 bln national mobile network

MEXICO CITY/PARIS, Sept 19 (Reuters) - Mexico has received
its first bid from a consortium to build a $10 billion
state-owned mobile network, a linchpin of efforts to break the
hold of Carlos Slim's America Movil on telecom services.

Telecom equipment makers Alcatel-Lucent and Ericsson helped
the consortium craft the proposal submitted to the government,
four sources said.

Mexico's government, which estimates that the network will
require an investment of about $10 billion over 10 years, wants
to pick a winner in mid-2015, two sources said.

If the consortium's bid wins, those companies could be key
suppliers of mobile antennae and other gear as well as manage
the network, although they have not signed formal contracts yet,
two sources said.

A spokesman for Mexico's telecommunications and transport
ministry (SCT) confirmed that it had received a proposal.
Alcatel-Lucent declined to comment, and Ericsson
did not respond to a request for comment.

The submission of the first bid, ahead of a government
tender, is a major step in Mexico's effort to inject competition
into a market where America Movil holds 70 percent of
mobile subscriptions and more than 60 percent of fixed lines.

If successful, the state-owned network would help No. 2
mobile carrier Telefonica and third-ranked Iusacell
to compete with Slim by giving them better coverage
without having to bear the cost of building the network. An
American Movil spokeswoman did not immediately comment on the
company's view of the project.

The project could attract new competitors, known as MVNOs,
which offer services on networks they do not own.

The network is also a test case of an industrywide trend
toward sharing telecoms infrastructure to cut costs and improve
services, especially in rural areas where operators are often
reluctant to build, given the poor return on investment.

However, if the project is mismanaged, experts warn it could
deter operators from investing in their own networks,
undermining efforts to improve services.

Other companies are also interested in building Mexico's new
network. China's Huawei, the world's second-biggest
telecom gear maker after Ericsson, has had several meetings with
government officials on the topic, one source said.

In an emailed statement, Huawei declined to say if it would
bid for the contract, adding that it was "natural" for a company
of its size to be invited to participate in the project.

BANKING ON COMPETITION

President Enrique Pena Nieto has bet that opening up the
telecom sector will boost economic growth, going so far as to
put the mobile network project into the constitution, with a
completion date of late 2018, to prevent lobbying efforts to
halt it.

Mexicans pay the highest prices for the slowest median
broadband speeds in the 34-nation Organisation for Economic
Co-operation and Development, and mobile penetration is among
the lowest in Latin America.

To fix the problem, Mexico's Congress has passed reforms to
strengthen the telecoms regulator and declare America Movil a
dominant player in the market, imposing tighter regulation.

The government also proposed a plan - which has only been
tried in Rwanda - to donate the country's fourth-generation
wireless airwaves to a company that would build a national
network.

That company will have exclusive use of 90 MHz of the 700
MHz wireless spectrum, freed up in the transition from analog to
digital broadcasting. It will then rent capacity at regulated
tariffs to telecom operators like Telefonica and Iusacell, which
will continue to serve customers directly.

"Without a shared network ... it will be impossible to have
sufficient telecoms service coverage, keeping our country
behind," Communications and Transport Secretary Gerardo Ruiz
Esparza said earlier this year.

Using rules introduced two years ago, a consortium has
presented an "unsolicited proposal" to the SCT, said the four
sources, who requested anonymity because the bid was not yet
public.

The government rewards companies presenting unsolicited
proposals for being proactive, giving them an edge in the
bidding process.

The consortium, which has tapped the expertise of eight
veteran telecoms executives, lawyers, and bankers, is still
searching for funding as well as an industrial partner, said one
of the people, adding that the World Bank's International
Finance Corp private-sector investment arm is providing help in
both areas.

The IFC is helping a consortium find a strategic partner and
someone to arrange a financing package, a spokeswoman said.

The ministry now must weigh the advantages of accepting the
proposal, which then allows it to use the studies and ideas
included, against the risk of deterring other bids by anointing
a front-runner.

Telecom operators are wary of the plan, saying the private
sector would use the spectrum more efficiently. Governments
usually auction it off to operators that then build networks.

Economist Scott Wallsten of the Washington-based Technology
Policy Institute said donating the spectrum was a kind of
subsidy that could deter operators from investing and ultimately
harm the whole reform effort.

"This will make sure that the state ends up being really the
only competitor," Wallsten said. "It could sink the reforms."

Rwanda's government and South Korea's KT Corp
are building a state-owned 4G network with Nokia Networks
as the main supplier. Nine other African countries
are considering similar plans.
(Editing by Simon Gardner and Lisa Von Ahn)